U.S. stocks gain on confidence over Greece

SaraSjølin

An earlier version of this story misspelled the name of Charles Schwab’s Brad Sorensen. The story has been corrected.

SAN FRANCISCO (MarketWatch) — U.S. stocks finished higher Tuesday, as investors took advantage of the past month’s pullback to buy shares in cyclical stocks on growing confidence that Greece’s government will avoid a sovereign-debt default.

The Dow Jones Industrial Average
DJIA, -0.32%
advanced 109.63 points, or 0.9%, to close at 12,190.01, with Alcoa Inc.
AA, +1.32%
shares surging 4% and Caterpillar Inc.
CAT, -0.10%
rising with a 3.3% gain for a 5.7% gain on the week.

The Standard & Poor’s 500 Index
SPX, -0.24%
gained 17.16 points, or 1.3%, to 1,295.52, for its best one-day gain since April 20, with the materials and consumer discretionary sectors leading the charge. Consumer staples was the only sector down on the day.

The technology-heavy Nasdaq Composite
COMP, -0.07%
rose 57.60 points, or 2.2%, to 2,687.26 for its largest one-day percent gain since Oct. 5.

Investors are trading on the confidence that Greece will enact measures needed to stave off a default, according to Brad Sorensen, director of market and sector research at Charles Schwab.

“It’s a short-term sigh of relief, maybe not warranted, but it’s an assurance there’s no imminent crisis,” Sorensen said.

After the close of U.S. markets, Greek Prime Minister George Papandreou and his government survived a no-confidence vote as they try to shore up support for economic reforms. The vote came just days after a mass protest over new government cutbacks shook Greece’s political establishment.

The euro
EURUSD, +0.2137%
fell slightly following the result of the vote trading at $1.4372, compared with $1.4402 before results.

Still, Greece is expected to get its next quarterly installment of bailout money as long as the country’s Parliament passes a contentious package of budget measures. European finance ministers also showed modest signs of progress toward a broader agreement for a bigger package of aid to Greece for coming years.

Ken Tower, senior analyst at Quantitative Analysis Service, said Tuesday’s rally was the result of a lot of money on the sidelines and investors wanting to put it to work on what appears to be a bottoming process.

“This is the beginning of the bottom,” Tower said. “The market will come up in a more sustainable rally. This is not a sustainable rally.”

The analyst also attributed the rally to short covering and cautioned that there is still bad news out there that has yet to be digested by investors.

On the New York Stock Exchange, nearly six stocks rose for each decliner as 851.1 million shares traded hands. On the Nasdaq, nearly four stocks rose for each decliner on volume of 518 million shares.

The rally was unaffected by expected bad housing data. The National Association of Realtors said sales of existing single-family homes and condos fell 3.8% in May to a seasonally adjusted annual rate of 4.81 million, in line with economists’ forecasts for a drop to 4.8 million.

“Housing continues to be a prime problem in this country,” said Phil Dow, director of equity strategy at RBC Wealth Management. “The inventory is still high and foreclosures are high. We shouldn’t expect anything to change until we get a more stable employment situation.”

In corporate news, shares of Walgreen Co.
WAG
slumped 4.2% after the largest U.S. drugstore chain said negotiations to renew its contract to be part of Express Scripts Inc.
ESRX, -0.31%
pharmacy- provider network were unsuccessful. The news came as Walgreen said its fiscal third-quarter earnings jumped 30% amid continued sales growth.

Best Buy
BBY, -6.62%
authorized a new $5 billion stock repurchase program and raised its quarterly dividend by 7%, prompting shares to rise 2.7%.

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